Business Activity in U.S. Expands in August for Fourth Month

Manufacturing, which makes up about 12 percent of the economy, is regaining its strength after slipping earlier this year as demand for automobiles, construction materials and appliances keeps assembly lines running. Photographer: George Frey/Bloomberg

Aug. 30 (Bloomberg) -- Business activity in the U.S.
expanded in August for a fourth consecutive month, a sign that
manufacturing is strong enough to support recovery in the
world’s biggest economy.

The MNI Chicago Report business barometer rose to 53,
matching forecasts, after a reading of 52.3 in July. Numbers
greater than 50 signal expansion. Estimates in a Bloomberg
survey of 53 economists ranged from 51 to 55. The index
averaged 54.6 in 2012 and 62.8 in 2011.

Manufacturing, which makes up about 12 percent of the
economy, is regaining its strength after slipping earlier this
year as demand for automobiles, construction materials and
appliances keeps assembly lines running. Higher business
investment and improved overseas markets are needed to help
sustain gains and support economic growth in the second half of
the year.

Manufacturing “has improved over the last couple of months
and remains at a decent pace,” Jacob Oubina, a senior economist
at RBC Capital Markets LLC, said before the report. Factories
are “ stabilizing at an OK level where they’re going to be a
decent contributor to economic growth in the second half of the
year.”

Another report today showed consumer spending rose less
than forecast in July as income growth slowed, indicating
further job gains are needed to sustain household purchases.

Household purchases, which account for about 70 percent of
the economy, rose 0.1 percent after a revised 0.6 percent
increase the prior month that was larger than previously
estimated, the Commerce Department reported. The median forecast
in a Bloomberg survey of economists called for a 0.3 percent
rise. Incomes climbed 0.1 percent following a 0.3 percent
advance in June.

Orders Rise

The Chicago group’s gauge of new orders rose to 57.2 in
August, the highest reading since May, from 53.9 in July. A
measure of employment fell to 54.9 from 56.6. The production
index dropped to 53 from 53.6 last month, the lowest reading
since April, according to today’s report.

Economists monitor the Chicago index and other regional
reports for an early reading on the national manufacturing
outlook. The Chicago group includes goods producers and service
providers with operations in the U.S. and abroad, making the
gauge a measure of overall growth.

The Federal Reserve Bank of New York’s general economic
index showed manufacturing in the region expanded at a slower-than-expected pace in August as companies suffered weak demand.
Factory activity gauged by the Federal Reserve Bank of
Philadelphia’s index increased for a third straight month.

Durable Goods

Those figures contrast with a report earlier this week that
showed orders for durable goods dropped in July by the most in
almost a year. Demand for non-defense capital goods excluding
aircraft, a proxy for future business investment in computers,
electronics and other equipment, fell 3.3 percent in July, the
biggest decrease in five months. Vehicle demand provided a
bright spot in the report, with orders for automobiles and parts
rising 0.5 percent after a 0.2 percent gain in June.

Americans’ appetite for vehicles has helped support
manufacturing, giving automakers such as Ford Motor Co. more
pricing power when combined with new-car features, Treasurer
Neil Schloss said during an analyst teleconference. Adjusted net
income at the Dearborn, Michigan-based carmaker climbed 54
percent in the second quarter to top an average analyst
estimate.

“Wherever we see an opportunity to do that competitively
or based on maybe a very high demand relative to supply, we’ll
take advantage of that and try to get every dollar of revenue
out that we can,” he said.